On July 1, 2014, the Internal Revenue Service unveiled the much anticipated IRS Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. This shorter application form (3 pages) was created to simplify the federal tax-exemption filing process to help small charities more easily apply for and quickly attain 501(c)(3) tax-exempt status. The 1023-EZ is a streamlined version of Form 1023, a very cumbersome form (26 pages) that requires lengthy narratives about the charity’s organization and operations and detailed financials in support of the filing, which often requires the assistance of a CPA, attorney or service company to complete and file. The 1023 was also subject to a very lengthy IRS review and approval process. (Last month, the IRS had a backlog of approximately 60,000 501(c)(3) applications, most of them pending for over nine months. This lag was largely caused by a large number of 1023 filings, about 70,000 per year, and inadequate staffing at the IRS Exempt Organizations Determinations unit.)
What Types of Organizations Are Eligible to File the Form 1023-EZ?
Most applicants filing for 501(c)(3) tax-exempt status are eligible to file the 1023-EZ. U.S. organizations with assets of $250,000 or less and annual gross receipts of $50,000 or less may file Form 1023-EZ. However, there is a lengthy list of organizations that are not eligible, and must use Form 1023 to apply for recognition of exemption under section 501(c)(3). To utilize the 1023-EZ form, applicants must not be a: foreign organization; nonprofit limited liability company; successor to a for-profit entity; church or a convention or association of churches; school, college or university; hospital or medical research organization…see a complete list in Section 2 of Revenue Procedure 2014-40.
Also, the Instructions for Form 1023-EZ, provide an Eligibility Worksheet, which consists of 26 questions, all of which must be answered “no” in order to be eligible to file the Form 1023-EZ. For organizations that already have a pending Form 1023, the IRS will accept for processing a completed Form 1023-EZ, provided that the Form 1023 has not yet been assigned for review. Organizations revoked for failing to file a Form 990 in the past three years with the IRS may file the 1023-EZ for reinstatement if it meets all of the eligibility requirements (see Section 4 to 7 of Revenue Procedure 2014-11, in addition to those mentioned above).
If an organization is eligible to file the Form 1023-EZ, there are some pitfalls to consider, which are very succinctly discussed in an article by Benjamin Takis of Tax-Exempt Solutions PLLC…see Who Should (and Should Not) File the Form 1023-EZ.
Is the IRS Form 1023-EZ a Success? Shorter, Faster, Cheaper + Something Extra
By creating a simpler form, the IRS review and approval process has been shortened to a matter of weeks. True to its name, the 1023-EZ is also very easy to complete. It must be filed online, with no required attachments, sometimes eliminating the need of assistance from an attorney or CPA. It also comes with a reduced filing fee, $400 rather than the usual $850 filing fee for the Form 1023. Also, according to IRS Commissioner John Koskinen, this common-sense approach will not only reduce lengthy processing delays for smaller organizations, which represent as many as 70 percent of all applicants, but ultimately for larger organizations as well, thereby allowing charities to focus on their important work sooner.
For additional details and filing assistance, visit the IRS Form 1023-EZ web page here.
This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.